The Gilded Age and Free-Market Redistribution

The Left is all aflutter over a new study of income inequality by the progressive Economic Policy Institute, proclaiming “a new Gilded Age.” Here’s a statement from Rhode Island’s Economic Progress Institute:

“Rising inequality affects virtually every part of the country, not just large urban areas or financial centers,” said Economic Progress Institute Director of Economic and Fiscal Policy, Doug Hall. “It’s a persistent problem throughout the country – in big cities and small towns in all 50 states. While the economy continues to recover, federal and state policymakers should make it a top priority to grow the incomes of working people.”

Some years ago, I probably would have taken the time to go through point by point and address the data as if we could come to some consensus, but I’ve found that the point of such reports isn’t really to present an argument. The data isn’t under dispute, and the Economic Policy Institute skips lightly through any explanation for the data and goes right to “solutions”:

What we can do to fix the problem: The rise of top incomes relative to the bottom 99 percent represents a sharp reversal of the trend that prevailed in the mid-20th century. From 1928 to 1973, the share of income held by the top 1 percent declined in every state for which we have data. This earlier era was characterized by a rising minimum wage, low levels of unemployment after the 1930s, widespread collective bargaining in private industries (manufacturing, transportation, telecommunications, and construction), and a cultural, political, and legal environment that kept a lid on executive compensation in all sectors of the economy. We need policies that return the economy to full employment and keep it there, return bargaining power to U.S. workers, increase political participation by all citizens, and boost public investments in child care, education, housing, and health care. Such policies will help prevent the wealthiest few from appropriating more than their fair share of the nation’s expanding economic pie.

But take a look at table 1 from the Economic Progress Institute. From 1945 to 1973, the share of income growth going to the top 1% of households in New England was between 0.6% in Rhode Island and 5.2% in Connecticut and Maine. From 1973 to 2015, it ranged from 29.0% in New Hampshire to 57.9% in Connecticut. If the name of the game is simply insinuating a causal link by picking roughly corresponding policies, why can’t we wonder whether the implementation of the Great Society in the mid-60s and subsequent government-centric policies caused the outcome that the progressives lament? Isn’t it peculiar that the most free-market state in the region, New Hampshire, has the lowest percentage?

Now play around with the Economic Policy Institute’s interactive page. The period over the last century when the 1% had the lowest share of income was during the dark days of the mid-to-late ’70s. If broad prosperity and income inequality are linked, perhaps we’re better off accepting the latter for the sake of the former. Consider: For the nation as a whole, the top 1% of families has 21% of the income. In Massachusetts, it’s 23.8%, and in Rhode Island, it’s 15.5%. Whose economy would you rather have?

Comparing the average incomes of the 99% might help the reader to answer that question. In Rhode Island, it’s $50,963. In Massachusetts, next door, it’s $61,694, or one-fifth higher.

In New Hampshire, by the way, the average income of the 99% is even higher, at $62,796. That means “Live Free or Die” New Hampshire has seen the lowest disparity of income growth in the region since 1973 and has the second-highest average income for the non-1%.

Now, we could debate why that is. I’d suggest that a low-tax, free-market approach to economic policy empowers working people to accomplish the healthy form of redistribution that doesn’t require government force. Let people work and innovate, and they’ll find ways to make it worthwhile for wealthy people to spend their money, and they’ll also ensure that the wealthy have to use up their wealth to compete. (I can’t understand why progressives think it’s a good idea to centralize power when their first premise is that powerful people can manipulate our entire society.)

At the very least, it isn’t clear that moving away from free-market policies is the answer.